EBay plans to announce today that it is changing direction in China, shutting down its auction site there and replacing it with one majority-owned and run by a Chinese company, said a source familiar with the company's plans.

The San Jose auction giant is forming a partnership with Tom Online, a Beijing-based wireless phone and online portal company. Tom Online will invest $20 million and own a 51 percent stake in the joint venture, which will operate eBay's new Chinese auction effort. EBay will invest $40 million and own the remaining 49 percent.

Representatives for eBay and Tom Online declined to comment. The deal was first reported by the Wall Street Journal on Monday.

The change in strategy follows months of rumors about eBay's possible exit from the Chinese market, amid its flagging efforts there. Formerly the No. 1 auction site in the country, eBay China is now a distant second to Taobao.com, which is operated by Yahoo partner Alibaba.com. In September, Martin Wu stepped down as CEO of eBay's Chinese auction subsidiary.

EBay's new site with Tom Online will launch next year, but the companies have not yet decided what to call it. When the new site launches, eBay will shutter its current auction site, although it will continue some operations there, such as cross-border auctions.

Wang Lei Lei, Tom Online's CEO, will head the new partnership.

Despite the change in direction, eBay is expected to continue to invest in China. The company has a technology development center based in Shanghai for which it recently hired a new general manager and whose staff has been expanding. Meanwhile Jeff Liao, the head of eBay China, will have a management role at the joint venture.

EBay's slowing growth has led it to count on international expansion to boost its results. The results have been mixed.

The company's international business is outpacing its domestic one. Thanks to the faster growth rates, in the first nine months of this year, about 47 percent of the company's revenue came from its international operations, up from 46 percent in the same period last year.

But the company's international sales have been slowing along with its U.S. business. And the closure of eBay China will mark the company's second big setback in Asia. EBay has been absent from the Japanese market since closing its site there in 2002.

Concerns about eBay's overall growth have sent its stock plunging, off 25 percent so far this year.

But not all investors are abandoning the stock. Entering foreign markets can be a challenge, and investors should expect some setbacks from time to time, argued David DuChene, senior research analyst at Firsthand Funds, a San-Jose-based mutual fund company that owns shares of eBay. With Internet usage rates still low in many countries including China, eBay has plenty of time to enter, re-enter or change its strategy in such markets, he said.

"I'm not worried about the stumbles," DuChene said. "We have a very long-term view of this. Without a question," eBay is "the No. 1 Internet online retail brand out there."

EBay entered the Chinese market in 2002 when it bought a 33 percent stake in EachNet. The company purchased the rest of EachNet the following year.